Legal Default Rules: The Case of Wrongful Discharge Laws

56 Pages Posted: 16 Feb 2006

See all articles by W. Bentley MacLeod

W. Bentley MacLeod

Princeton University; National Bureau of Economic Research (NBER); Columbia University - Department of Economics; IZA Institute of Labor Economics

Voraprapa Nakavachara

Faculty of Economics, Chulalongkorn University

Date Written: February 2006

Abstract

One of the most vexing public policy issues is the extent to which governments should intervene into private contractual relationships. The purpose of this paper is to explore both theoretically and empirically the extent to which such interventions may enhance efficiency. In the case of employment law, economists have traditionally taken the view that intervention, such as protection against wrongful discharge, simply undoes the original intent of the parties to the agreement. We find that both the good faith and the implied contract exceptions to employment at will may enhance employment in occupations characterized by high levels of investment. These results suggest that under the appropriate conditions courts may enhance the operation of a competitive market by setting appropriate default remedies for breach of contract.

Keywords: employment law, wrongful discharge, private contracts, default rules

JEL Classification: J11, J21, J31, J61, K12, K31

Suggested Citation

MacLeod, William Bentley and Nakavachara, Voraprapa, Legal Default Rules: The Case of Wrongful Discharge Laws (February 2006). IZA Discussion Paper No. 1970, Available at SSRN: https://ssrn.com/abstract=884473 or http://dx.doi.org/10.2139/ssrn.884473

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Voraprapa Nakavachara

Faculty of Economics, Chulalongkorn University ( email )

Bangkok 10330
Thailand

HOME PAGE: http://pioneer.netserv.chula.ac.th/~nvorapra/

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